ECB buying Ireland, Portugal bonds weighed to smooth crisis exit

Ireland and Portugal could draw on a European Central Bank bond-buying program to help them become the first countries in the three-year debt crisis to be weaned off official aid, a top European policy maker said.

ECB bond purchases along with a credit line from the European rescue fund could point the way back to market financing, proving that Europe’s anti-crisis remedies are working, Economic and Monetary Commissioner Olli Rehn said.

“The option of combining a precautionary program with the ECB’s outright monetary transactions is something that should not be ruled out, and is one option that should be considered as a way of smoothing the way for a successful return to market financing,” Rehn told reporters after a meeting of EU finance ministers in Brussels today.

After loan pledges of 486 billion euros ($647 billion) to four countries over three years to combat the debt turmoil, European governments are eager to turn Ireland and Portugal into crisis-fighting success stories. Financial markets have calmed and peripheral sovereign yields have declined after ECB President Mario Draghi in July pledged to do whatever it takes to preserve the euro, before unveiling the bond program details in September.

Any decision by the ECB to deploy its as-yet unused unlimited bond-purchase facility would rest with the independent central bank, Rehn added. It restricted any bond buying to countries that have already shown an ability to tap the markets.

Market Access

“Full market access, complete market access” is the requirement, Draghi said on Oct. 4. While a central bank spokesman declined today to spell out what that means, Irish Finance Minister Michael Noonan said he understands the ECB to be looking for “the capacity to raise bonds rather than treasury bills.”

In Ireland’s case that would mean two sales of nine-year bonds and “then we’re in a position to apply,” Noonan said. “I’m certainly not ruling it out, but it’s a little bit early yet.”

The ECB also limited any bond-market interventions to countries meeting economic and budgetary conditions in a program overseen by the European Stability Mechanism, the government- managed aid fund set up last October.

Extending Maturities

In a further boost for Ireland and Portugal, Rehn said he favors giving both countries more time to pay back bailout loans. That could mean extending to them the same treatment granted to Greece last year.

“Our standpoint is in principle favorable,” Rehn said. Also up for debate is a cut in the loan rates, another concession made to Greece, Rehn said. He said experts will make proposals for the March meeting of finance ministers.

“Portugal is now in a condition to take advantage of any opportunity that presents itself in bond markets to carry out primary market issuance,” Finance Minister Vitor Gaspar said after euro ministers met last night.